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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Saudi Arabia Under Fire From All Sides

Saudi Arabia bet that it could defy the U.S. when it pushed for oil production cuts at the OPEC+ meeting, gambling that President Trump would not lash out in retaliation despite some heavy-handed pressure from his twitter feed ahead of the summit in Vienna. This week, the bet seems to have paid off.

To be sure, Saudi Arabia’s decision to push for oil production cuts was a bit of a no brainer. The extreme budgetary pressure facing Riyadh from low oil prices is vastly more concerning than any legal or political action from the U.S. Congress or White House. And absent a deal in Vienna, oil prices could have fallen further.

“Saudi Arabia today had a 'Saudi first' policy,” Helima Croft, global head of commodity strategy at RBC Capital Markets, said shortly after OPEC+ announced its production cuts last Friday. She told CNBC that such a move risked angering the American president. “I think everybody in OPEC is waiting to see what President Trump does next. Is he going to be quiet after this agreement, or is he going to take to social media and criticize OPEC?” Croft said.

Riyadh certainly weighed American interests more than at any other OPEC meeting in recent memory. The murder of Saudi journalist Jamal Khashoggi has burned a lot of bridges in Washington, and the White House is one of the few places left where Saudi Arabia can find friends.

However, it appears that the oil production cuts did not anger President Trump enough for him to take action against crown prince Mohammed bin Salman. On Tuesday he rode to the crown prince’s defense. “He’s the leader of Saudi Arabia. They’ve been a very good ally,” Trump said in an interview with Reuters. He said once again that MbS “vehemently denies” having ordered the assassination of Khashoggi, despite the conclusion from the CIA to the contrary. Related: The Dangers Of China’s Growing Oil Demand

Late last month, the U.S. Senate voted to cut off American support for Saudi Arabia’s war in Yemen. The bipartisan consensus condemning the murder of Khashoggi, and the role that MbS played in it, has only grown since then. “You have to be willfully blind not to come to the conclusion that this was orchestrated and organized by people under the command of MbS,” Republican Senator Lindsey Graham said last week.

Now, the U.S. Senate is considering another measure, a resolution condemning the crown prince for the murder. The resolution would have no practical effect, but it would force Trump to either sign it or veto it.

Trump’s support for MbS, while steadfast, may not be bottomless in the face of mounting pressure. “Well, I’m much more open to Yemen because frankly, I hate to see what’s going on in Yemen,” Trump said, according to Reuters. “But it takes two to tango. I’d want to see Iran pull out of Yemen too. Because - and I think they will.”

Trump may still run interference on another major piece of legislation that has gathered momentum in Congress. The No Oil Producing and Exporting Cartels, or NOPEC Act, would allow the U.S. government to sue OPEC members for antitrust violations. The legislation has been floating around Washington for years but has often failed to garner enough support. Past presidents, from both parties, have also opposed the various versions of a “NOPEC” bill over fear of damaging their relationship with the Saudi monarchy.

However, the Khashoggi murder has sparked a lot of momentum for the NOPEC bill and Congress may even try to take it up before the end of the year. “There's some push to look at NOPEC, but there's nothing certain yet,” a U.S. House aide involved in talks told S&P Global Platts on December 7. One factor working in favor of the bill’s proponents is that the legislation, at this point, is not divided along partisan lines. Related: 2019: A Pivotal Year For OPEC

This is where Trump could be pivotal. He has lashed out at OPEC on twitter several times this year, blaming them for high oil prices. He’s obviously no fan of the cartel. Yet, he has gone out of his way to defend MbS over the Khashoggi murder. It’s unclear how he would react if Congress succeeded in moving the NOPEC legislation.

The one thing the Saudis have going for them is the fact that the production cuts from OPEC+ have so far failed to significantly boost oil prices. As a result, Trump might not be all that angry.

Meanwhile, the Saudi economy continues to bleed cash from low oil prices. The FT reports that many of MbS’ highly-hyped economic transformation initiatives are floundering, and international investors are staying away.

Everything seems to be going wrong for MbS right now. He is facing international scrutiny, oil prices have not rallied even as Saudi Arabia prepares to curtail production, and Washington may move on damaging legislation anyway.

By Nick Cunningham of Oilprice.com

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  • Mamdouh G Salameh on December 13 2018 said:
    By pushing for a cut in production during the most recent OPEC meeting, Saudi Arabia has shown that it will defy the United States and President Trump when its vital national interests are involved.

    The Saudi economy continues to bleed cash from low oil prices. The Saudis’ cash reserves have dwindled from $750 bn at the time of the 2014 oil price crash to less than $500 bn needed to keep the economy running and to defend the Saudi Rial against devaluation.

    Saudi Arabia’s foreign policy is in shambles. They are facing problems not only in Yemen but also in Syria, Iraq, Iran and the whole Middle East.

    However, I venture to suggest that the United States is the actual root of trouble for Saudi Arabia. The Americans have honed the Saudis against Iran egged by Israel. They have formed an unholy US-Saudi-Israel axis against Iran culminating in the withdrawal of the United States from the Iran nuclear deal and the re-introduction of Sanctions against Iran.

    Since the discovery of oil in their territory in 1938 by US oil companies, the Saudis have been satisfying US addiction to oil, financing their wars and doing their bidding. It would then be no surprise to detect the US invisible hand (and sometimes not too invisible) behind the Saudi entanglements in Yemen, Syria, Lebanon, Iraq and their escalating war of words with Iran.

    Prince Mohammed bin Salman’s list of failures include the withdrawal of the IPO of Saudi Aramco which is the jewel in the crown of the Saudi Vision 2030 because of risk of American litigation over the 9/11 attack on the world trade centre in New York and question marks about the real size of Saudi proven oil reserves. They also include his feud with Qatar and the murder of the Saudi journalist in the Saudi Consulate in Istanbul. But his real potential problem is the leadership succession once King Salman leaves the scene.

    Saudi Arabia has no alternative but to disentangle itself from the fiasco in Yemen. It is a war it can never win with the extra cost of debilitating its finances and exposing serious shortcomings in the planning and performance of its armed forces.

    It should also end its escalating conflict with Iran. Iran doesn’t threaten vital national interests of Saudi Arabia and therefore, it is not a Saudi war. It is Israels’ and the United States’.

    And with the end of the civil war in Syria is nigh, Saudi Arabia should end its involvement in Syria and join the winning side in helping to rebuild the country. This may atone for its contribution to the huge damage inflicted on Syria.

    Finally it should end its siege of Qatar. The conflict with Qatar has exposed the haplessness of Saudi Arabia and the resilience of Qatar.

    2018 has seen a lot of attacks on OPEC by President Trump accusing it of manipulating oil prices as a cartel. And in effort to wrest more control over global oil markets away from foreign producers, the US Congress has been pushing a bill that would let the US sue OPEC for an alleged oil price fixing. The bill called “No Oil Producing and Exporting Cartels Act,” or NOPEC, was first introduced in May this year. Even if it became a law, NOPEC is an empty threat because OPEC is not a cartel. Furthermore, it will take years in courts to prove that OPEC is a cartel.

    Still, OPEC shouldn’t be unduly worried about the NOPEC Act. If NOPEC ever becomes a law and the United States tries to sue any OPEC member under the NOPEC Act, the organization has the economic muscle to defend itself against American litigation.

    Whether Prince Mohammed bin Salman could survive all these setbacks is debatable. Still, it is far better for Saudi Arabia to disengage from the United States. For Saudi Arabia, the United States is not part of the solution but part of the problem.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Gerard Remy on December 13 2018 said:
    The Saudis were unwise to do away with the agreement they had in place with Russia earlier this year that essentially effected the mopping up of extra crude which kept prices depressed from 2014 on wards. So disciplined were those cuts that crude prices significantly rebounded with
    the price of Brent crude at one time, hovered at around 80 dollars which would have assisted their economic recovery and those of their allies. Instead they chose to assist President Trump with his re isolation of Iran which saw a softening of that stance by the President thus causing the glut on the oil market that is existing at present.
  • Gerard Remy on December 13 2018 said:
    The Saudis were unwise to do away with the agreement they had in place with Russia earlier this year that essentially effected the mopping up of extra crude which kept prices depressed from 2014 on wards. So disciplined were those cuts that crude prices significantly rebounded with
    the price of Brent crude at one time, hovered at around 80 dollars which would have assisted their economic recovery and those of their allies. Instead they chose to assist President Trump with his re isolation of Iran which saw a softening of that stance by the President thus causing the glut on the oil market that is existing at present.
  • Emelio on December 14 2018 said:
    I seem to remember not too long ago the Saudis and Iranians were united against Israel.

    When and why did the Saudis start to turn on Iran instead?
  • James De Laccio on December 16 2018 said:
    Saudi Arabia is technological failure and however they struggle to present themselves towards the outer world as developed nation they are neither developed as they say they are nor have potential to be that one day. Just look at their infrastructure, they can not be compared with other Arab nations, look at their roads and villages, it is like in Africa. The only well maintained roads I have seen in Al Khobar. In Aramco they have two times more employees than they need plus expats doing all the job. Their LPG terminal in Juaymah is literally falling apart. Low oil prices are going to pin them to the ground within couple of years . Thinking that they can pull out of bearish oil market without consequences is ridiculous. This country is comedy already and deserves free fall. I strongly believe that even their oil reserves are overestimated. 1.5 trillion $ for Aramco IPO is madness.

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